Specializing in Generality: Firm Strategies When Intermediate Markets Work

Abstract

Please scroll down for article-it is on subsequent pagesWith 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.) and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to transform strategic visions and achieve better outcomes. For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org ORGANIZATION SCIENCEAbstract. This paper studies the relationship between two decisions shaping the organizational configuration of a firm: whether to make the upstream resources more general and deployable to more markets (versus keeping them tailored to a few markets) and whether to trade with downstream firms as an upstream supplier of intermediate products and services (versus directly entering downstream markets). Although the literature has looked at these two decisions separately, we argue that they depend on each other. This has the important implication that they can generate organizational complementarities, inducing firms to implement them jointly. We are motivated in particular by the observation that an increasing number of firms invest in general upstream resources and exploit them as upstream suppliers of intermediate services or products-a strategy that we refer to as specialization in generality. Interestingly, prior literature has mostly highlighted the use of general upstream resources to enter new downstream markets. We identify the supply and demand conditions under which specialization in generality is instead more likely to emerge: lack of prior downstream assets on the supply side and a roughly equal distribution of buyers across intermediate markets (a "broad" demand) on the demand side. We test our predictions using a sample of firms in the U.S. laser industry between 1993 and 2001. A regulatory shock that increases the value of trading relative to downstream entry provides the setting for a quasi-natural experiment, which corroborates our theoretical predictions.

The interplay of competition and cooperation

“…Such sequential coopetition entails a lack of simultaneous competition and cooperation. Instead, competitors may decide over time to become suppliers of general purpose technologies and collaborate with their former competitors by means of division of labor in the market (Conti, Gambardella, & Novelli, in press). Likewise, a partner may opt to discontinue its alliance with the firm before introducing a competing product line (Das & Teng, ).…”

Leveraging who you know by what you know: Specialization and returns to relational capital

“…Thus, there exists the potential to increase its utilization through expansion into new markets and segments, much like a general‐purpose technology shock (Bresnahan & Gambardella, ). However, the ability to expand into new markets and acquire new exchange partners may not be homogenously distributed (Conti et al, ). Rather, there can be a threefold limitation due to the level of specialization, stemming from knowledge, identity, and network position.…”

“…We inform work in relational capital by explaining differences in upstream and downstream relational capital for the focal actor (Hoetker, ; Kale, Singh, & Perlmutter, ; Somaya et al, ) and illuminating how one type of relational capital may be leveraged with the other, based on specialization. In other words, we contribute by showing gains in upstream relational capital serve as a “general purpose technology” which provides greater returns to generalists because it can be leveraged across a diversified downstream client base (Conti, Gambardella, & Novelli, ). At the same time, losses in upstream relational capital can be offset by deeper downstream embeddedness and domain expertise.…”

Profiting from Enabling Technologies?

“…In this paper, we emphasize that the PFI theory requires further elucidation to be able to embrace the idiosyncratic characteristics of enabling technologies. Enabling technologies are both expandable and adaptable technologies (Teece, 2018a(Teece, , 2018b(Teece, , 2018c; see also Conti et al, 2019a and b, who refer to them as to "general technologies"). They are more general than "discrete" (narrowly applicable) technologies and can impact multiple market segments.…”

“…Here, we suggest that at least one important category of technology (i.e., enabling technologies) will not fit comfortably in the framework and requires further analysis and modifications to the framework. Enabling technologies are upgradable, adaptable technologies with improvement potential that have broad applicability (see Rosenberg, 1963;Bresnahan & Trajtenberg, 1995;Bresnahan & Gambardella, 1998;Teece, 2018a;Conti et al, 2019a). Enabling technologies are found in many contexts, ranging from computer science algorithms to lasers to chemicals.…”